Home loans: The beginner’s guide
We all hear horror stories about home loans, and it can be severely daunting for an aspiring home owner during the application process. The trick, according to the major financial institutions in South Africa, is to make sure you have all the information you need, as well as all relevant documentation during the application itself.Â Â WithÂ this beginner’s guide to home loans, you canÂ find out about everything you need to know to get started, everything you need to know about the process, and some tips from the experts.
How to apply for your home loan
Steps involved in the home loan process according to most of the leading financial institutions are, in a nutshell, as follows:
- Find your dream home: the most exciting part of the application
- Determine affordability: most institutions have affordability or mortgage calculators which indicates how much you can afford
- Make an offer to purchase
- Select an application and institution that works for you: there are so many to choose from
- Send required documentation: see list below
- Home valuation by institution
- Decision is made regarding the loan approval. You will be notified of this.
- Quotation and registration upon approval.
What you need
The documentation you must have on hand, according to leading home loan institutions in South Africa, includes:
- Valid South African ID as well as a copy
- If married, a copy of your spouse’s ID and marriage certificate
- Proof of Residence
- Details of employment
- Most recent payslip
- Three month’s banks statement (six months if self-employed)
- Details of employer (address, contact details)
- For commission earners, latest IRP5
- Statement of assets and liabilities
- Copy of deed / offer to purchase
- In the case of additional income, proof is needed.
What you need to know
One of the biggest headaches for home loan applicants is the costs involved, and an understanding of what you are in for will significantly reduce the possibility of any misunderstandings. Remember that borrowing money for the purchase of a home is one of the biggest financial commitments most people undertake, as ABSA notes, and they recommend that you have at least 10% of the purchase price available to cover these costs, which include:
- Deposit — the down payment on the home
- Registration costs — including attorney’s fees, conveyance fees, etc.
- Transfer fees — calculated on a sliding scale based on the amount of the home loan
- Initiation fee — a once-off administration fee
- Service fee — monthly fee on home loan management
- Deed office fee — registering ownership of home
- Property valuation fee — required for evaluating the property.
The interest is the next cost involved. Nedbank notes that the interest on the loan is calculated on the outstanding daily balance and is debited form your account on the first working day of the following month. Finally, you have your monthly home loan repayments, which is calculated as the property’s value minus the deposit paid.
Managing your debt
Using the affordability calculator is essential during the initial stages of your loan application, such as the one offered by FNB. Not only does this help the financer ascertain what you can afford, but it also allows you to understand the cost implications of your loan. The above mentioned costs involved need to be accommodated, which essentially means you are not simply repaying the home itself, you are also paying for services that have enabled you to get the loan. You need to ensure you have enough coming into your account to cover these costs. Here are some tips for first time home loan applicants:
- Save up for your deposit — the bigger the deposit, the easier your repayments will get
- Try to borrow as little as possible. If the institution is offering more than necessary, opt for only as much as you need
- Try to pay more than the minimum repayment each month. It can save you a fair amount in the end, especially in interest.
You also don’t have to wait for a financial institution to get back to you or approve your home loan application. You can now apply for a home loan with places like Shoprite or BMW. The home world has become your oyster with the amount of different organisations and institutions one now has access to. Just remember that when applying for a home loan, you need to ensure that you have a full information set so that you know exactly what is expected of you, as well as what you can expect from your loan provider.
Sources: ABSA, BMW Finance, First National Bank, Nedbank, SA Home Loans, Standard BankÂ